Feeling puzzled by the Indian stock market's recent performance? It's a question on many investors' minds: How did a market that was once thriving become the worst-performing major market globally? Let's dive in and uncover the key factors behind this shift. This analysis is based on the ICICI Prudential's Monthly Market Outlook report, offering a comprehensive look at the Indian market's trajectory.
A Tale of Two Years: From Highs to Lows
Over the past year, the Indian stock market has faced a storm of challenges. These include Foreign Portfolio Investor (FPI) outflows, rising inflation, uncertainty surrounding US tariffs, concerns about slowing global growth, differing economic policies among major economies, and high domestic valuations. But here's where it gets interesting: the report suggests a potential turnaround is on the horizon, with corporate earnings gaining momentum, domestic market volatility calming down, and government policies like GST reforms and tax cuts expected to boost growth.
Market Performance: A Closer Look
Let's compare the performance of different market segments over two periods: November 2024 and November 2025. Here’s a snapshot:
- Nifty 50: From a 22% gain in November 2024 to a mere 5% rise in November 2025.
- Nifty 100: Dropped from a 31% increase to just 3%.
- Nifty Midcap 150: Saw a decline from a 42% gain to 3%.
- Nifty Smallcap 250: Experienced a significant downturn, from a 45% increase to a -5% return.
In the previous year, the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 performed exceptionally well, driven by strong economic conditions and investor confidence. But, the tables turned, and these indices showed subdued or even negative returns in the following year. The benchmark Nifty 50 index, while still positive, also saw a considerable drop in gains. This shift highlights the volatility and unpredictability inherent in the stock market.
Global Comparison: India vs. the World
Initially, India was among the top-performing markets globally. However, the situation changed dramatically. As of November 2024, India's 5% rise made it the worst-performing major market. In contrast, the US, Eurozone, China, Russia, the UK, Taiwan, and Hong Kong all showed gains ranging from 10% to 20%, with Japan and South Korea recording even stronger returns. This stark contrast raises the question: What caused India to lag behind its global peers?
Three Key Factors Behind the Underperformance
Elevated Valuations: The report compares the valuation trends across the Nifty 50, BSE Midcap, and BSE Smallcap indices using their median Price-to-Earnings (P/E) ratios. The report indicates that valuations, while moderating from their peaks, remain elevated. For example, the Nifty 50 Index's median P/E increased from around 32.1 in October 2024 to 33.2 in October 2025, indicating stable large-cap valuations. The BSE Midcap Index saw a notable decline from its peak of 48.8 to 41.6, and the BSE Smallcap 250 Index fell from 45.3 to 37.7, suggesting a moderation in valuations after a period of strong growth.
Earnings Slowdown: After a challenging period, the report anticipates a recovery in earnings due to policy support, including GST, income tax, and interest rate cuts. The data reveals a robust profit growth in FY23 and FY24, with the Profit After Tax (PAT) Compound Annual Growth Rate (CAGR) peaking at 47% in Q1FY24 and 48% in Q2FY24. However, the trend shows a slowdown in FY25, turning negative at -1% in Q1FY25 and further dipping to -6% in Q2FY25, indicating a challenging period for corporate profitability. The brokerage firm expects a gradual recovery thereafter, with PAT growth improving modestly to 4–8% through FY26, and reaching 10% in Q2FY26.
FPI Outflows and Inflows: The report highlights the trend of Foreign Portfolio Investment (FPI) flows in India. After a strong inflow in September 2024, FPIs witnessed a sharp outflow in October 2024. However, by October 2025, a renewed uptick in FPI inflows was observed, suggesting revived interest in Indian equities. This shift in FPI activity significantly impacts market performance.
In Conclusion: The Indian stock market's recent underperformance is a complex issue, influenced by factors like high valuations, an earnings slowdown, and fluctuations in FPI flows. While the report suggests a potential recovery, investors should remain cautious and informed. But what do you think? Do you agree with these assessments, or do you see other factors at play? Share your thoughts in the comments below!
Disclaimer: This analysis is for educational purposes only. The views and recommendations are those of individual analysts or broking companies, not Mint. We advise investors to consult with certified experts before making any investment decisions.
